DOL’s Proposed Fiduciary Rule Changes See Mixed Response

The Department of Labor’s Employees Benefit Security Administration on Tuesday hosted the first of two days of public comment on its proposed retirement security rule, also known as the fiduciary adviser rule, with dissenters and advocates taking turns on a livestreamed hearing.

The regulator’s proposal, introduced in October by the DOL, would extend fiduciary status to anyone recommending individual retirement account rollovers, annuity sales and investment menu designs, among other reforms.

Opposition

The proposal has drawn widespread criticism and many calls for withdrawal from the investment advice and insurance industries, some of which presented at the hearing.

Many commenters argued that the proposal is essentially the same as a 2016 rule finalized by the DOL, which covered many of the same transactions, but which was invalidated by the U.S. 5th Circuit Court of Appeals. Another common objection was that the proposal was at best redundant, because state insurance regulators and the Securities and Exchange Commission already regulate the same annuity and rollover transactions, respectively.

Some, such as Susan Neely, the president and CEO of the American Council of Life Insurers, called for a full withdrawal of the proposal. She argued that it would create high compliance costs for one-off transactions, especially for savers with smaller balances, which would lead advisers to leave the market.

Others in the financial industry, while not calling for outright dismissal, called for more time to consider and discuss the rule, which they say are moving too quickly, especially during the holiday season.

Support

Meanwhile, many consumer protection advocates made staunch defenses of the proposal.

Dana Muir, a professor and the business law chair at the University of Michigan, explained in her testimony that retirement savers place trust in their adviser when making decisions on annuity purchases and rollovers and that these decisions are not always made in their best interest.

She said retirement advice is governed partially by the SEC and state insurance regulators, and “that patchwork allows some advisers in whom retirement savers place their trust to provide those savers with conflicted advice that nibbles away at savers’ assets.”

Brian Graff, the CEO of the American Retirement Association, offered support for one measure in the proposal: applying fiduciary status to advisers who provide investment menus to plan sponsors as a one-time interaction.

Graff noted that Regulation Best Interest, enforced by the SEC, does not apply to plan sponsors because they are not retail investors. As such, even very small businesses sponsoring a retirement plan are effectively treated as if they were sophisticated investors, when in most cases they are far from it and are dependent on their adviser’s recommendations.

Graff argued that when creating a menu, “a plan sponsor is making decisions on behalf of participants, ARA believes it is absolutely essential, as provided in the Department’s proposed rule, that such a fiduciary plan sponsor be able to rely on the fact that their investment adviser will be subject to the same fiduciary standard of care regardless of whether such advice is just once or on a ‘regular basis.’” 

Candace Archer, the policy director at the AFL-CIO, raised similar concerns. She explained that Reg BI does not cover institutional investors, including retirement plans of any size, but it also does not cover non-securities such as annuities, real estate or commodities, all of which are part of the retirement market.

Micah Hauptman, director of investor protection at the Consumer Federation of America, said retirement investing is increasingly complicated and investors should be able to have trust and confidence in their advisers and not “be steered to overpriced, sub-optimal products or services that aren’t in their best interest by people who seek to evade their regulatory obligations and accountability, all so they can get a big payday.”

Hauptman countered an objection from opponents of the proposal who say it would reduce access to advice for smaller savers. He argued that “small savers have the most to gain,” because “they can least afford to lose any savings from conflicted advice.”

EBSA will host another series of panels on Wednesday to further discuss the proposal.